Debt, Schmedt: The Only People Borrowing These Days Are The Feds

Yes, the Federal government is leveraging up like a 2007-era homeowner by borrowing more than 10% of GDP a year. But the rest of us are actually borrowing so little these days that the rate of total non-financial borrowing for the country is declining.

What does that mean?

It means that the credit creation of the economy as a whole is not spiraling out of control. This, in turn, should make it less likely that we’ll get immediately slammed with hyper-inflation and/or collectively collapse into bankruptcy.

Hopefully it also means that the private sectors’ balance sheets are getting stronger. Too bad the same can’t be said for the government.

In the four quarters ended Q1:2009, federal government borrowing has averaged approximately
$1.5 trillion at an annual rate. Whew! This compares with average federal borrowing of only $273
billion annualized in the four quarters ended Q1:2008.

But what has happened to nonfederal domestic borrowing? It has gone from an average $2.1 trillion annualized in the four quarters ended Q1:2008 down to only $291 billion in the four quarters ended Q1:2009.

So, although Treasury borrowing has skyrocketed in the past four quarters, total domestic nonfinancial borrowing has slowed from a four-quarter moving average of $2.4 trillion in Q1:2008 down to $1.8 trillion in Q1:2009 – the slowest rate of total borrowing since Q3:2004.

Similarly, although Federal Reserve credit creation has soared in the past year, private financial
sector credit creation has plunged (see Chart 6). Before one gets too worked up about Treasury
borrowing and Fed credit creation, one has to take into consideration how much private
nonfinancial sector borrowing and private financial sector credit creation have slowed.

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